Texas' Petrochemical Boom Fuels Hopes and Concerns

FREEPORT — The largest chemical complex in the Western Hemisphere resembles a city of pipes and stacks. And Dow Chemical, its owner, is spending more than $4 billion to make it even larger.

“In terms of dollars, this is the biggest expansion since we built the place,” said Earl Shipp, vice president for Dow’s Texas operations, who works out of the vast Freeport facility that dates to 1940.

More Texas chemical plants — a dozen, at least — are also moving forward with new projects. The hydraulic fracturing technology that sparked a drilling frenzy around Texas and the nation has proved a boon for the petrochemical industry, which is converting cheap and abundant natural gas into resins and polymers that go into items like synthetic clothing and cellphones. Experts say this represents the largest petrochemical expansion in Texas since the days of cheap oil in the 1980s.

But the growth comes amid concerns about future shortages of water and electric power statewide, as well as worries about the industry’s impact on air pollution in the Houston area.

Although the cheap natural gas presents an “enormous opportunity” for the petrochemical industry, “we want to be sure that as all of this activity takes off, it’s not creating a lot of bads” like water scarcity or air pollution, said Kenneth B. Medlock III, the deputy director of the Energy Forum at Rice University’s James A. Baker III Institute for Public Policy.

Texas already includes the country’s largest concentration of petrochemical plants, with more than 200 manufacturing facilities, according to the Texas Chemical Council. The industry started in the decades after Texas’ first big oil discovery in 1901, and growth accelerated during World War II, when the Allies sought synthetic rubber and material for explosives.

Modern plants use mostly natural gas, rather than oil, to make the chemicals. Whereas power plants run on methane, a component of natural gas, chemical plants use other, hotter-burning components — ethane, propane and butane.

The Texas Commission on Environmental Quality says that eight petrochemical plant operators have applied for air permits within the past 16 months. These include big names like Exxon Mobil (which plans expanded facilities at Baytown and Mont Belvieu), Chevron and Occidental.

A few plants, including Exxon, have filed for two permits. Some plants are not even on the list; they may not need new air permits or may not have yet filed for them. (Dow, which is not on the list, is completing the applications for its recently announced facility in Freeport that will convert ethane to ethylene, a product whose ultimate uses include plastic bags and medical tubing.)

Not all the facilities planned may be fully built, said Hector Rivero, the president of the Texas Chemical Council. Conditions can change. For example, chemical companies are watching the fiscal turmoil in Europe, a major manufacturing hub, Rivero said. Dramatically tighter regulation of hydraulic fracturing, or a surge in natural-gas vehicles that drives up demand and prices for the fuel, could also affect petrochemical operations.

Nonetheless, it is a remarkable turnaround for an industry that was in the doldrums just four years ago, as natural gas prices soared to $13 per million British thermal units and China strengthened its manufacturing advantage. Gas prices are now less than $3. That allows Texas to compete because natural gas and energy account for more than half of a plant’s operating cost, according to Rivero.

“The mood is much better. You see a lot of smiling faces out there,” said Chris Witte, the site manager for another expanding Freeport plant that is adjacent to Dow’s and owned by BASF. The chemical industry, he added, has fought hard not to “go the way of the steel industry.”

Texas is also fighting to stay ahead of a competitor state along the Gulf. “People may say, ‘Well, Texas is getting the big ones,’” said Dan Borne, president of the Louisiana Chemical Association. “Well, I can tell you this much — we’re getting some substantial ones, too.”

Often, the plants can take advantage of local incentives to expand, like tax abatements. Some plant operators have applied to the Texas Enterprise Fund, which provides money for job-creating projects. Dow, for example, received a $1 million grant from the fund in April, and Kuraray America, a chemical company expanding in Harris County, is getting nearly that much.

Rivero estimates that the expansions already announced total $15 billion in investment and will create about 20,000 jobs. Most will be in construction, but about a quarter will be permanent, he said. Dow anticipates 4,500 construction jobs in the coming years, with 300 permanent jobs resulting from the expansion. In Brazoria County, which includes Freeport, unemployment stands at 7 percent, and residents are hoping to benefit.

Chemical companies say they are eager to ensure that enough skilled workers are available to fuel the boom — like pipe fitters, welders and electricians. Witte of BASF said that about 40 percent of workers at his plant were eligible to retire over the next five years.

But the expansions come at a time when Texas is facing critical questions about the availability of water and power. The crippling drought, which has abated but not ended, forced a Formosa Plastics facility along the coast in Point Comfort to temporarily adjust to receiving as much as 20 percent less water from a nearby lake as its level receded. Chemical plants need vast amounts of water for cooling and cleaning.

Shipp of Dow said that intensive new conservation efforts resulted in water-use cutbacks of 10 percent last year at existing facilities, and that the savings should ensure there is enough water for the expansion. During the drought, Dow also began using cleaned-up wastewater from a nearby operation.

“We may not want to drink it, but we can certainly wash a rail car out with it,” Shipp said.

Dow’s new facilities will also be less water-intensive than those using earlier technologies, but the company also bought land last year to build another reservoir.

As for power, even a brief blackout can cause potentially critical disruptions at chemical plants. The Texas electric grid has recently come under scrutiny for not having enough power reserves to accommodate a growing population, especially during hot summers in the future (although abundant natural gas has created cheap power, which helps the plants).

Many chemical plants generate electricity themselves. Dow produces enough to operate independent of the grid, but some plants do not.

“I don’t know that anyone is immune to the questions of reliability,” said James LeBas, a fiscal consultant to various industry groups.

Environmentalists, for their part, are worried about air pollution. Matthew Tejada, executive director of Air Alliance Houston, said the major concern was ozone levels, which were high in Texas last year.

In the Houston area, Tejada said in an email, “the next several years could be the worst for ozone in terms of adding new sources of ozone precursors since regulations began in the 1970s.”

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